The fast approaching Autumn Budget on 22nd November presents the Chancellor, Phillip Hammond, with a timely opportunity to clarify the much debated and speculated future of IR35 in the private sector.
The pressure on Mr Hammond to address the ongoing uncertainty with regards to further changes to the off-payroll working rules is quite rightly mounting, as HMRC and the Government remain predictably tight-lipped about their plans.
Unfortunately, our sector knows the consequences of being left in the dark about IR35 only too well, not to mention the problems encountered when changes are inevitably rushed through.
April’s controversial changes to IR35 in the public sector offer the perfect insight into how reform should not be enforced. Chaos and confusion surrounded the run up to the 6th April, which continued in the months after. Contractors rightly held reservations as to whether public sector clients and agencies were up to the task of making accurate IR35 decisions. And in many respects, the dust has only just settled.
Neither Mr Hammond nor HMRC have openly acknowledged the true impact recent IR35 reform has had, not only on UK contracting, but recruiting and the public sector too. The Government’s silence, combined with HMRC’s outright denial that changes have affected our sector will not have helped mend the pair’s already fractured relationship with the UK’s 2million freelancers and contractors.
But that isn’t to say the Chancellor can’t start to make amends by publicly addressing private sector IR35 rumours in his Budget speech. It’s better late than never, and clarity and honesty would help contractors, recruiters and the private sector itself prepare should reform be extended.
Despite the very clear challenges following public sector reform, Qdos Contractor research has revealed that 63% of contractors predominantly working in IT and technology roles are confident that speculated changes in the private sector could be handled.
This might come as a surprise. But it’s perhaps more an indication of contractors’ resilience and confidence in their clients and recruitment agencies to make better IR35 decisions, rather than their faith in HMRC to get things right with the implementation second time round.
And contractors are right to be confident, given that potentially incoming changes can in fact be managed. Should the responsibility for setting IR35 status be passed on to the client with recruitment agencies in tow, the sector must learn from previous mistakes.
Clients and agencies now know that blanket determinations and below-par IR35 contract assessments simply won’t do. Reality has dawned and end-engagers understand they must actively take steps to make well-informed employment status decisions – and ones which are assisted by unbiased, expert IR35 contract reviews.
Confidence will no doubt have been taken from the public sector, with many contractors being forced inside IR35 or into umbrella arrangements. That said, many of the initial blanket determinations have been reversed and thousands of contractors continue to work outside IR35 via Qdos’ Status Review system, put in place with a number of agencies and their end clients to manage the rules. [EDIT 07/11/17 – this paragraph previously indicated that the sector was coping and that the many contractors were being placed outside of IR35 which misrepresented the reality for the majority]
However, should reform be introduced to the private sector, it must be implemented properly. It’s unacceptable for HMRC to architect such fundamental changes to contracting, only for them to wash their hands with it when difficulty inevitably arises. Put simply, if they’re adamant on extending reform then they must see it through, and roll out changes in a more structured way.
Regardless of whether contractors feel potential incoming changes could be coped with, previous research indicates that the issue sits as 48% of contractors’ top concern. This is clearly a situation which must be handled carefully.
Given that HMRC has only recently started policing changes in the public sector, one would imagine the Government might want to give themselves as much time to prepare for private sector changes, and properly assess the impact on the public sector before making any announcements.
That said, the Budget has delivered many unexpected moments in the past, so prepare for the unexpected. In the unlikely case that reform is off the cards, then Mr Hammond has a responsibility to announce this.
In the coming weeks the Chancellor will be polishing what is arguably the most eagerly anticipated business speech in the calendar. It would be to his, the Government’s, the economy’s and indeed contractors’ detriment if he ignored the elephant in the room and failed to shed much needed light on further IR35 reform.